Practice Problems

AEC 52 Income Taxation

Computation of Regular Income Tax

1. Tate and Liza are partners. They perform accounting services for various clients and share profits
45% and 55% respectively. The partnership had the following data for the year 2020.

Service revenue ₱850,000

Direct cost of services 300,000
Utilities expense 48,000
Staff salary 240,000
Interest income on deposit 10,000
Depreciation 120,000

The partners also have their own respective transactions as follows:

Tate Liza
Salaries from other work 280,000
Sale of goods 150,000
Cost of sales 85,000
Interest income from deposits 15,000 20,000
Gains from wagering on boxing 15,000
Losses from wagering 25,000
Gain on sale of family home 560,000
Gain on sale of personal
furniture held for 2 years 35,000
Creditable withholding taxes 6,000 10,000

Determine the shares of Tate and Liza from the GPP, and the income tax due of Tate and Liza
each, if:
a. The GPP uses Itemized deductions and the partners use Itemized deductions:
b. The GPP uses OSD and the partners use itemized deductions
c. The GPP uses OSD and the partners use OSD
d. The GPP uses itemized deductions and the partners use OSD

If the partnership is instead engaged in non-professional services, determine the income tax due
of Tate and Liza each if they both use itemized deductions.
2. Magma corporation is an organized proprietary educational institution. It is a domestic
corporation. It has the following data for the year 2020:

Tuition revenue ₱12,500,000

Sales of books 2,580,000
Cost of sales on books 2,180,000
Miscellaneous fees 3,800,000
Rent income 1,200,000
Cost of leasehold improvements
received 800,000
Salaries expense 8,550,000
Depreciation 2,000,000
Interest expense for borrowings on
constructing new college building 500,000
Dividends from resident foreign
corporation which annually earns
75% of its income in the Philippines 45,000
Creditable withholding taxes 240,000

The school will report the leasehold improvements on a spread out basis. The related lease will
have a remaining 5 year term. The improvements have a useful life of 8 years.

a. Determine the income tax payable

3. Shelly is a resident alien. She had the following transactions during the year:

Sales 1,500,000
Sales returns 150,000
Cost of sales 650,000
Rent income net of 5% withholding tax 171,000
Debt cancelled in exchange for goods 50,000
Cash dividends from a resident foreign
corporation. 75% of its income is in
the Philippines 45,000
PCSO Lottery winnings 30,000,000
Gain on sale of personal furniture 50,000
Medical cash allowance 5,500
Laundry allowance 3,000
13th Month pay 15,000
Salaries earned, gross 180,000
SSS premium contributions withheld
from salaries 5,000
PAG-IBIG premium contributions
withheld from salaries 5,000
Overtime pay 6,000
Holiday pay 5,000
 Business expenses 765,000
Loss on destroyed store furniture 60,000
Creditable withholding taxes on sales 28,000

All personal items were held for over 1 year prior to the sale.

a. Determine the income tax payable

4. Courtney is a resident citizen. She had the following (non-cumulative) transactions in 2020.

1st 2nd 3rd 4th

Quarter Quarter Quarter Quarter
Sales 450,000 620,000 690,000 720,000
Sales discounts 5,000 8,000 5,000 10,000
Cost of sales 200,000 320,000 360,000 370,000
Rent income 85,000 85,000 85,000 85,000
Salaries expense 150,000 150,000 150,000 240,000
Advertising expenses 55,000 25,000 10,000 28,000
Utilities expense 10,000 11,000 10,000 13,000
Depreciation 25,000 25,000 25,000 35,000
Entertainment Expense 5,000 ─ 6,500 ─
Interest income on deposits 8,000 7,500 30,000 32,000
Interest expense ─ 85,000 75,000 62,000
Contributions to local government ─ ─ 15,000 8,500
Contributions to accredited NGOs for
cancer research ─ ─ 10,000 12,000
Creditable withholding taxes 1,000 1,500 2,000 1,800

a. Determine the amount of income tax payable each quarter using itemized deductions

5. Juan is a resident citizen. He is engaged in a sales business. He has the following data for four
years:

2017 2018 2019 2020

Other gross income 1,500,000 1,600,000 1,700,000 1,800,000
Other allowable deductions 1,300,000 1,400,000 1,650,000 1,400,000
AR writeoff 300,000 50,000 150,000 200,000
Recoveries of writeoffs from:
2017 ─ 300,000 ─ ─
2018 ─ ─ 50,000 ─
2019 ─ ─ ─ 75,000
Creditable withholding taxes 3,000 4,000 3,500 3,700

Determine the amount of income tax due and income tax payable each year.
 6. Maxie Incorporated is a domestic corporation. It has been operating for the past four years and
2020 is its fifth year of operations. The following data is available.

2017 2018 2019 2020 2021

Sales 18,500,000 19,000,000 22,000,000 24,000,000 25,500,000
Sales returns ─ 50,000 200,000 350,000 250,000
Cost of sales 14,500,000 15,500,000 17,500,000 20,000,000 21,000,000
Salaries expense 1,800,000 1,850,000 2,000,000 1,850,000 1,900,000
Advertising expense 1,200,000 650,000 750,000 230,000 350,000
Utilities expense 120,000 100,000 150,000 100,000 155,000
Depreciation 1,000,000 1,000,000 1,350,000 1,000,000 1,200,000

Determine the income tax payable in each year.

Take note of any carryovers that have expired.

7. Archie Industries is a domestic corporation. It has the following data for the year:

Sales 8,500,000
Cost of sales 5,500,000
Salaries expense 650,000
Advertising 150,000
Depreciation 700,000
Interest income on deposits 120,000
Interest expense for business 250,000
Net Operating Loss last year 400,000
Creditable withholding taxes 45,000
Previous quarter tax payments 75,000
Excess MCIT paid last year 55,000
Gain on sale of domestic stocks not
through exchange 65,000
Dividends received from subsidiary
domestic corporation 25,000
Recovery of A/R written off in the last year 150,000
Refund of last year erroneously paid
donor’s tax 65,000
Gain from sale of bonds, the bonds had a
maturity of 7 years 120,000
The corporation’s balance sheet is summarized as follows (before closing the income summary
accounts):

Current Assets 10,412,500 Current liabilities 3,882,970

Noncurrent Assets 16,087,500 Noncurrent liabilities 5,000,000
Salaries expense 26,500,000 8,882,970

Share capital 8,500,000

Retained Earnings 9,117,030

The board of directors is planning to declare 200,000 in dividends. 150,000 will be appropriated
for the purposes of opening a new store in the next year.

a. Compute the income tax payable

b. Compute the improperly accumulated earnings tax payable